The Long Way Home

This week I’m writing about short-term vacation rentals (STR) and their impact on prices in the local housing market. It’ll take a long way home to get there, so bear with me if you can.

Try as I might, I could never understand Twitter. It sucked me into a time-stealing scroll through the outrageous and the bor­ing each day, and I never figured out how to “post” anything or gather a “following.” I’m not an influencer.

So when it was taken over by one Elon Musk, a highly overrated businessman, and his villainous friends in the private equity world, I closed my account and spent that hour of Twitter each day doing something more productive.

Then, another nefarious capitalist, Mark Zuckerberg and his Meta, started “Threads,” an online clone of Twitter. Once again, I struggled to figure it out. Eventually, I gar­nered 36 followers, quite a few more than I have with this column, yet far from the num­ber of followers the so-called influencers have.

Last week I “re-posted” a missive on Threads in which the writer posited, “…if you are using Airbnb or VRBO when you travel, you are a part of the housing crisis problem.”

To my surprise, my rare repost generated a comment. This is the kind of engagement these things are intended to promote, al­though I see it rarely on my posts. The com­menter asked me to show data demonstrat­ing the linkage between vacation rental and housing costs in Cook County (MN). Instead of replying to that on Threads, I‘ll try to find an answer here.

Although just recently called that, STRs have been a part of the Cook County land­scape for as long as I can remember. Many people wanted vacation property here in God’s country and used STR to help them pay for their piece of the dream. Unable to stay or vacation permanently, rental income helped pay the way.

Some managed to rent to people they knew personally. Others used real estate brokers to manage the logistics of renting, getting keys and instructions to renters, and maintaining the property. Where there’s demand, there will be people to fulfill it —for a profit, of course.

Then, technology revolutionized the rental management industry, enabling investors to easily find short-term renters online and place keys and instructions in lockboxes on the front door—the beginning of the online booking business.

VRBO (Vacation Rentals by Owner) started in 1995. David Clouse, a retired teacher in Au­rora, CO, created it to rent out his Breckenridge Ski Resort condo. VRBO quickly became the leader in the online vacation rental industry. In 2006, VRBO was acquired by HomeAway and became part of the travel giant Expedia Group in 2015.

Cook County has instituted a regulatory re­gime around STRs and currently has over 300 licensed. The majority of licensed STRs have out-of-town owners.

There isn’t much research on the specific im­pact STRs have on local real estate prices.

An influx of short-term rentals can reduce the availability of long-term rental housing at popular destinations worldwide, potential­ly leading to homelessness and higher rents. They sometimes disrupt the character and life­style of neighborhoods, to the chagrin of long-time residents.

Home prices, even here in God’s Country, are set by only one thing–the agreement between a willing seller and a willing buyer. The more buyers and fewer sellers there are, the higher prices will go. And prices have increased dra­matically here.

We bought our house in 2016, and its cur­rent taxable value is double what we paid. We only had a house with that kind of apprecia­tion was in Nevada when it doubled in value over six years, crashing into what we paid for it two years later.

The STR buyer is likely to be financially capable. They are investors, after all. They don’t have the same considerations as a young, working family looking to buy a per­manent home,

These investors are not concerned about the neighborhood or the location of the nearest school. Their sole focus is on a solid return on investment.

The return is always enough to justify the investor buyer paying the highest price and offering the least uncertainty to a willing seller. And what is that return?

Unlike the resident buyer, the STR buyer, who likely has one or more other sources of income, looks forward to appreciation, sig­nificant positive cash flow, and tax deductions for depreciation, fees paid to online services, cleaning and repairs, property taxes, insur­ance, and even travel costs to visit/stay in their vacation home. The young family hop­ing to live in that house doesn’t fare as well.

Numerous structural reasons exist for in­creasing housing prices in Cook County, MN. STRs are but one, and they are a pretty big one.